Legal Structure: A Diagnostic Model for Social Entrepreneurs

Business Planning. Consider concept, customers, capital in developing a business plan.

Entity Formation. Determine the level of liability and protection your venture will need, and work with an attorney to find the optimum legal structure. Avoid forming too soon, as you will have to begin paying state fees for incorporation once you file (even if you don’t actually start doing business or generating income until later)

Capital Relationships. Have a clear understanding of your organization’s debt v. equity equation. The most common pitfall is companies not having enough capital.

Operational Relationships.  Understand players and flow involved in sourcing your products and services, manufacturing, and bringing to market. Do you meet any government requirements for your industry? Do you qualify for any programs (i.e. minority, women small business leaders, etc.)?

Managing Risks. Think of risks such as protecting intellectual property (IP), protecting against tort liability, and considering regulatory liability. An attorney can help identify ways to protect your organization’s assets and protect against liability.

Extra Permits & Licenses.  Depending on the products or services your social venture is contemplating, you will have to look into applicable government licenses and permits. For example, as a non-profit, your organization will have to apply for tax-exempt status. Likewise, to conduct any construction work, procuring a contractor’s license is required.

• Resource: CalGOLD.ca.gov is a resource Professor Kell mentioned for small businesses in California to find out what kinds of permits and licenses their venture may require.